[Updated with latest HSA limits following new tax laws] Based on IRS figures and tax law changes, here are the latest HSA limits.
|Item||2020 limits||2019 limits||2018 limits||2017 limits|
|HSA annual contribution limits||Individual Limit – $3,550|
Family Limit – $7,100
|Individual Limit – $3,500 |
Family Limit – $7,000
|Individual Limit – $3,450 |
Family Limit – $6,900
|Individual Limit – $3,400
Family Limit – $6,750
|HSA catch-up contributions||$1,000 if 55 or older||$1,000 if 55 or older||$1,000 if 55 or older||$1,000 if 55 or older|
|Minimum annual deductible||Individual coverage – $1,400 |
Family coverage – $2,800
|Individual coverage – $1,350 |
Family coverage – $2,700
|Individual coverage – $1,350 |
Family coverage – $2,700
|Individual coverage – $1,300
Family coverage – $2,600
|Maximum out-of-pocket expenses||Individual coverage – $6,900|
Family coverage – $13,800
|Individual coverage – $6,750 |
Family coverage – $13,500
|Individual coverage – $6,650 |
Family coverage – $13,300
|Individual coverage – $6,550
Family coverage – $13,100
HSAs have risen in popularity thanks to health-care and tax law changes and the increasing use of high-deductible health plans (see earlier updates below).
How Health Savings Accounts Work
Over the years, Health Savings Accounts, or HSAs, have provided a great way for individuals and families to cover the cost of medical and health care expenses that would otherwise not have been covered by their health insurance plan.Essentially, Health Savings Accounts are tax advantaged medical savings accounts that you own. The funds that you contribute to an HSA are contributed on a pre-tax basis; that is they are not subject to federal taxes when you deposit them.
Similar to IRA accounts, you can contribute to your HSA account during any calendar year, through April 15th of the following calendar year. Contribution limits are indexed to inflation every year and set by the IRS every year. The latest annual contribution limits are shown in the table above. If an individual account holder or the owner of a family HSA is age 55 or older, an additional “catch-up” contribution of $1,000 is also allowed.
These Health Savings Accounts, working in conjunction with a high deductible health insurance plans (HDHP), allowing the account holder to deposit and invest funds that can be withdrawn and used for any number of different qualified health care related expenses. The minimum annual deductibles for a HDHP are shown in the table above for self-only coverage and family coverage. This is the minimum deductible amount set on HDHP plans that employees have to cover with their HSA or personal funds. The maximum out-of-pocket limit (what you would have to pay) for HDHPs has also been provided in the table above.
In addition, any funds in your Health Savings Account that are not used during the calendar year, can be rolled over into the following year. Therefore, if funds are not used and they continue to roll over, the balance in your HSA account can grow significantly over time. This is a key advantage over the standard Flexible spending accounts (FSA), where you have to spend your contributions in the year/period you make them or lose the funds forever.
How to Choose the Right HSA
Prior to opening your Health Savings Account, you must decide on your high deductible health care plan with a private health care provider or via your employer. But, before funding your HSA, it is important to do some research on the actual account you will be depositing your funds into. This is because not all Health Savings Accounts are alike.
First, there are many entities that offer accounts through which to fund your HSA. These include banks, credit unions, insurance companies, and other approved companies. And, similar to bank and brokerage accounts, there could be a wide array of different interest rates, fees, and requirements within your HSA account.
In addition, make sure that you read the small print to be aware of any possible hidden account fees or charges to liquidate funds. Also, know if there is a minimum balance required in your account, and if so, how much.
Watch for Penalties
When you take distributions from your HSA to use for qualified medical expenses, these distributions are excludable from your taxable gross income. This is true even if you are not eligible to make contributions your HSA.
However, if you take any distributions from your Health Savings Account that are not considered qualified medical expenses, then these distributions are includable in your gross income. And, if you are under the age of 65, you will also be subject to an additional 10% tax as a penalty.
Is a HDHP and HSA account right for me?
With the growing popularity of HDHP/HSA accounts for employers and employees many people are facing this question. Employers like and encourage employees towards these plans because they generally face a lower overall cost for providing employee coverage. While employees, especially the healthy ones like HDHP because it allows them to minimize their monthly premiums – 20 to 80% of traditional PPO plans in a lot of cases. So if you or your family expect low to minimal health care or medical expenses in the coming year then a HDHP with HSA is by far the best option for you. If you do have medical issues and expect many doctor visits then a PPO plan may be better. The best thing is to compare the two options on a spreadsheet and do the math on figuring which is the best one for you and your family.
[2012 update] Changes to Health Savings Accounts with Health Care Reform
If you already have a Health Savings Account or will be opening one soon, there are some changes on the horizon due to the newly passed Health Care Reform provisions.
One such change includes the way in which reimbursable expenses are defined for Health Savings Accounts. For example, starting in 2011, only insulin and prescribed drugs will be considered reimbursable in your HSA. Therefore, over-the-counter medications such as aspirin and other more basic medical items will no longer be considered qualified expenses for Health Savings Accounts.
Another change to be aware of is the penalty for non-qualified distributions from your Health Savings Account. Currently, the penalty tax on non-qualified HSA distributions is 10%. However, with the new Health Care Reform, as of 2011, this penalty for non-qualified distributions will go from 10% to 20%.
Even with the upcoming changes, Health Savings Accounts provide a great way for individuals and families to pay medical expenses that are otherwise not covered. These expenses could include costs for preventive and wellness related programs that could potentially save you from future illnesses and other health related issues.
[Update – Sep 2010] — The Internal Revenue Service issued guidance reflecting statutory changes regarding the use of certain tax-favored arrangements, such as flexible spending arrangements (FSAs), to pay for over-the-counter medicines and drugs. Based on the recently approved health care reform package, effective Jan. 1, 2011, applies to FSAs and health reimbursement arrangements (HRAs). Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan. A similar rule goes into effect on Jan. 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).